China is rising. Will the China era come? What does an awakening Giant mean for the rest of the world? This blog will focus on these questions and introduce current economic events and politic news of China.

Friday, August 12, 2005

A good scenario has been seen in China's foreign trade and international economic cooperation over the first six months of this year, as a result of efforts on exploiting the "two markets" (domestic and overseas), improving bilateral and multi-lateral trade relations, and handling trade disputes properly.

Problems

Trade imbalance with different partners became imminent when the trade surplus soared. The macro economic situation at home and abroad showed that the robust increase in export and moderate rise of imports would be hardly reversible. The trade surplus would likely approach 80 billion USD for the whole year if export rose 25 percent and imports 18 percent. That would double the highest record in history.

In the meantime, the situation varied on trade with different partners. Surplus normally took place in trade with the US and EU while more deficit was created in trade with ROK, Russia and Australia. A conservative estimation set China's favorable balance of trade with US at more than 100 billion USD and 60 billion USD with the EU. That would provide new pretexts for trade protectionism on those markets.

Exports of high energy consumption and resource products kept rising rapidly, indicating a challenge for the macro-control campaign. The government cut or removed some export tax rebates and banned processing trade of some categories of such products. As a result, export of primary steel products and rolled steel dropped. In June export of billet only went up slightly by 9.6 percent, while in March the export surged 14.3 times. Export of rolled steel doubled in June, compare with that in March when the amount was jumped 2.4 times. However, generally, exports of high energy consumption, heavy pollution and resource related products still spiraled up. Rises of export of billet, rolled steel and aluminum not forged reached 2.6 times, 1.5 times and 21.5 percent respectively. It is no easy task to rein in these exports due to the rapid expansion of investment on the production capacity in the previous years.

There is increasing trade protectionism sentiment against China. Textile will face a difficult road ahead. The consultation on the textile trade between China and the US is still under way. If it fails, China-made cotton trousers and cotton shirts which are under the US restriction will be kept out of the US customs.

Some developing countries are also likely to activate Article 242 and safeguard measures against Chinese goods. Trade friction has intensified between China and the US whose five out of 11 investigations under Article 337 this year have targeted at China, more than any other country. Over the first six months of this year alone, the US has raised its trade deficit, the yuan exchange rate and the intellectual rights protection to China as its most concerned issues. The US Congress proposed 11 bills asking the Bush administration for harsh measures against China on trade and economic exchanges.

The EU has shown increasing protectionism against China. It has consolidated its control over shoes import. One of its steps was the decision on anti-dumping investigations into Chinese shoes on June 12. China's home appliance export will face more pressure after the EU's two instructions on recycling of appliances, WEEE and ROHS, are effective as of August 13.

New frictions have been triggered in developing countries. Argentina, Colombia, Mexico and Brazil are considering safeguard measures and India, along with other markets, is making more anti-dumping probes into Chinese products.

Mounting pressure continues on the further appreciation of the Chinese currency. The fast growth of the exports and the upsurging trade surplus have pushed China's forex reserves up remarkably. This in turn adds difficulty into the central bank's decision making on its monetary policy.

The US attributed the RMB to its trade deficit with China and the US Congress, government and industrial associations have kept pressurizing China for stronger yuan. There is voice from the Capitol Hill even requiring punitive tariffs on all Chinese products.

China needs to improve its tax rebate system. As local governments have to shoulder more to fund tax rebates, some places deliberately constrain the growth of foreign trade firms, discourage or limit export-oriented foreign-funded projects, or block procurement beyond the local suppliers and export of general trade. New defaulted tax rebates have taken place in some places.

China's foreign trade and economic cooperation will enjoy a favorable overall environment nationally and internationally. The Ministry of Commerce predicts that the scenario of exports exceeding imports would be unlikely to be reversed, which would lead to the fulfillment of the 15 percent growth goal for the whole year. In addition, foreign investors are still optimistic toward China's environment and will hopefully bring more foreign capital influx into China than last year.

Priorities for the second half of the year will be placed on further transformation of the way of export growth, boosting imports, improving the utilization of foreign capital, upgrading the national development zones, accelerating the implement of the "go global" strategy with the focus on the diversified places of origin for textile products, making more efforts on bilateral and multilateral trade and economic relations including more participation into the regional economic cooperation, and handling the world trade disputes properly to protect domestic industries. Source: Xinhua